Probably the hottest farm equipment topic in the last few months has been the Interim Tier 4 (IT4) engine emissions regulation that came into force at the beginning of January. This new and very stringent standard had everyone in the industry wondering how much of an impact it would have on new equipment prices.
Best estimates last fall pegged the expected price jumps at somewhere around the 10 per cent mark. And as it tuns out, prices certainly have increased. But by how much? Was 10 per cent an accurate prediction?
To answer that and other questions about their new engine technology, a panel of representatives from three of the major agricultural engine manufacturers, AGCO, Cummins and Case IH, gathered at AG Connect Expo, a farm machinery show, in Atlanta, Georgia, in January.
So, what did they have to say about price increases? “It’s going to vary between about 2.5 to seven per cent through the interim period (2011 to 2013), depending on which products you’re talking about,” said John Rodgers, AGCO’s spokesman.
But, he points out, there is more to new AGCO tractors and combines in 2011 than just a new engine design. In most cases other new features have been added as well. “Our commitment to the market was that we would add content to the vehicle that would offset that (IT4) price increase, so we would add value to our products at the same time,” continued Rodgers. “We added improved guidance, and we added serviceability increases. So the value a customer sees is at or better than what we’ve seen in the past.”
In other words, you’re paying more, but you’re also getting more, according to the equipment companies.
“From a Case IH perspective we take a similar line,” said Leo Bose, Case IH’s panelist. “Our product content has changed.” That company is also offering major new redesigns in much of its line, which add value and represent improvements beyond just engine refinements.
As an example, he points to the new Steiger tractors. “When you take a look at the content change in that vehicle, it’s a complete cab change. From the ground up, the chassis, transmission and axle assembly [are also new].” And overall, farmers opting for new Case IH equipment will see price increases similar to AGCO buyers. “That price range (increase) from 2.5 to six to eight per cent, that’s what we’re targeting,” he added.
Jim Branner from Cummins also acknowledged the IT4 engines that company is building will be more expensive, but he was unwilling to attribute an exact percentage of any increases to the emissions features. “It varies by platform and application,” he said.
And although John Deere didn’t participate in the panel, Matt Arnold, one of that company’s senior marketing reps, explained they are following a similar path and adding value to their 2011 machines with a variety of other new features. So IT4 technology only accounts for a portion of the overall cost increases.
THE USED MARKET
What implications the new standard will have on the used equipment market is uncertain. In the past some companies have been buying and exporting used machinery to less-developed areas of the world, like eastern Europe. That has helped keep the demand for used equipment buoyant. However, that practice may no longer be possible when used machines becoming available here and in other western countries all have IT4 engines. They can’t operate in regions that don’t have low-sulphur fuel.
“We can’t just take those (emissions) pieces off and send those (IT4) engines into those regions,” added Rodgers. “The components that makes these engines efficient and make them function and compliant will begin to degrade with the (lower) fuel quality. In a high-pressure common rail fuel injection system if you get poor quality fuel in there, you’re going to see wear issues.”
With the Final Tier 4 standard requiring still more new engine systems in 2014, companies have only three years to recoup their R&D investment in the current interim technology. “Emissions cycles (between tiers) are getting shorter,” added Branner. “Basically, we have three years to get a return on investment on all that expense between R&D, installation and application. At the end of the day we’re expected to return a profit for our company and to our shareholders, so prices have to go up to offset those costs.”
Engineers at all companies are still hard at work on Final Tier 4 technologies. Because of that, price increases due in part to emissions standards are likely to be with us for a while.